Questor: Gulf Keystone Petroleum remains a sell

The Kurdistan-focused oil group remains volatile and Questor says sell

The possibility that GKP may be taken over is a major attraction of the shares for investors.Photo: BUDDY MAYS

6:00AM BST 29 Jun 2014

Gulf Keystone Petroleum 109.25p Questor says SELL

Unpredictable investors

Gulf Keystone Petroleum (GKP) is a volatile stock. In the past 12 months, shares in the Kurdistan-focused oil group have run as high as 219¾p – in the wake of last September’s key court ruling that confirmed GKP’s ownership of the giant Shaikan field – and have fallen as low as 80p earlier this month, amid concern about the turmoil in Iraq. One of the main reasons for the swings in the share price is that GKP has a large and enthusiastic following of private investors. The stock is frequently a hot topic of conversation on the internet bulletin boards.

The possibility that GKP may be taken over is a major attraction of the shares for investors. The reason the stock jumped after its court victory last year was speculation that GKP had become a bid target. The long-running court case was viewed by many investors as a deterrent to potenital suitors. The speculation has not gone away. Last week, GKP raced higher on renewed deal hopes. Todd Kozel, its founder, confirmed he had retired as chief executive and three other non-executives also resigned, developments that some reckoned could pave the way for a bid.

Turmoil in boardroom

That speculation proved unfounded and no approach materialised. Indeed, Questor believes the board turmoil, which included the finance director leaving earlier in June, should be taken as a red flag, rather than a buying opportunity. For example, the status of Mr Kozel remains unclear. He has been a focus of investor ire in the past, with his pay coming in for criticism. While he is stepping back as CEO, he is staying on as an executive director. A letter from GKP to shareholders, released on Friday, clearly indicates that this controversial figure will remain closely involved in the company.

Bear case stronger

Questor last looked at GKP on October 10, when the shares were priced at 171¾p. We recommended selling at the time and nothing has happened since to convince us to turn buyers of the stock. If anything, the bear case has strengthened. In March, the group cut the estimated size of its key asset, the Shaikan field. In April, the company sold $250m of bonds but unsettled investors in the process by warning that, if it did not get the debt sale away, it could run out of cash by the end of May. We remain cautious of GKP, even with the shares at these low levels.